Struggling with debt?

Can Credit Card Companies Garnish Your Wages? The Truth Revealed

The Short Answer: Yes, But It’s Complicated

Let’s cut right to the chase – credit card companies can potentially garnish your wages if you fall behind on payments. But it’s not as simple as them just taking money straight from your paycheck. There’s a whole legal process involved that we’ll dive into.The main thing to understand is that before any garnishment can happen, the credit card company has to sue you first and get a court judgment against you. Only after they have that judgment can they then try to garnish your wages or bank accounts to get their money.So in a nutshell: credit card debt alone doesn’t automatically allow garnishment. The company has to take you to court over the unpaid debt, win the case, and then use that court judgment to pursue wage garnishment as a way to collect what you owe them.It’s a pretty involved process, with a lot of steps and legal hoops to jump through on the creditor’s part. But it does happen, especially if you’ve just ignored debt collectors for months or years on end.

The Whole Ugly Process, Step-by-Step

Okay, now let’s walk through exactly how a credit card company could potentially garnish someone’s wages over unpaid debt. We’ll break it down chronologically:

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1. You miss multiple minimum payments on your credit card bill. Maybe you lost your job, had unexpected expenses, or just got overwhelmed with debt. Whatever the reason, those missed payments start racking up late fees and interest charges.
2. Your credit card debt goes into delinquency. Most credit card companies will hit you with a penalty APR and eventually charge off the debt (write it off as a loss on their books) once you’ve missed several months of payments. This is usually around the 180 days past due mark.
3. Your debt gets sold to a third-party collection agency. Credit card companies often sell off charged-off debts to junk debt buyers and collection agencies who then take over pursuit of the debt. This is when the really aggressive calls and letters start coming in.
4. The debt collector threatens a lawsuit over the unpaid debt. This is more than just an empty threat. Debt collectors have every legal right to sue you in civil court if you refuse to pay up or negotiate some kind of debt settlement.
5. You receive an official court summons about the lawsuit. If you ignore the debt collector’s demands and they decide to proceed with legal action, you’ll be formally served with a summons to appear in court regarding the credit card debt you owe.
6. You miss the court date or fail to respond to the summons. This is a crucial step – if you miss this court date or simply don’t show up to defend yourself, the court will automatically rule against you. This is called a “default judgment.”
7. The creditor/debt collector gets a judgment against you. With this judgment in hand, the creditor now has the legal right to pursue more aggressive collection methods like garnishing your wages or bank accounts.
8. The creditor/debt collector initiates a wage garnishment order. They’ll provide documentation of the judgment to your employer, requiring them by law to withhold a portion of your paycheck to go toward paying off the debt.
9. Your employer must comply with the wage garnishment order. They’re legally obligated to follow this order and dock your paycheck accordingly until the debt is paid off, or until the creditor terminates the garnishment.

So in summary, it’s not a quick or easy process. Credit card companies have to take you to court first before they can even think about garnishing your wages. But it’s definitely a possibility if you just ignore unpaid credit card debts for too long.

How Much of Your Wages Can Actually Be Garnished?

There are federal limits in place on how much of your disposable earnings (what’s left after taxes and allowances) can be garnished for a single debt. The limit is the lesser of:

• 25% of your disposable earnings, or
• The amount by which your disposable earnings exceed 30 times the federal minimum wage

So let’s say you make $500 per week in disposable earnings after taxes and deductions. 25% of that is $125. And 30 times the current federal minimum wage of $7.25 is $217.50.In this example, the most that could be garnished would be $125 (25% of your disposable earnings), since that’s less than the $282.50 amount above the $217.50 minimum wage threshold.However, these limits can vary a bit from state to state. Some states set lower garnishment caps to protect more of your income. So you’d want to check your particular state’s laws.It’s also important to note that these limits are just for a single debt. If you happen to have multiple money judgments against you (like from credit cards, medical bills, etc.), creditors can potentially garnish up to 25% for each debt. So your total garnishment could end up being way more than 25% in that scenario.

But What If You Can’t Afford to Have Your Wages Garnished?

Look, having your wages garnished sucks – there’s no way around that. It means less take-home pay to cover rent, groceries, and other living expenses.The good news is that you may be able to get the garnishment reduced or even stopped temporarily if you can prove it would create an extreme financial hardship for your household.This usually involves filing a claim of exemption with the court that issued the garnishment order. You’ll need to make a pretty solid case that the garnishment would prevent you from being able to afford basic living expenses like:

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• Rent or mortgage payments
• Utilities (electric, gas, water, etc.)
• Food and basic household supplies
• Transportation costs to get to work
• Out-of-pocket medical expenses

If the judge agrees that the garnishment would create true financial hardship, they can lower the garnishment amount or even halt it temporarily while you get back on your feet.The key is acting quickly and filing for this exemption or hardship relief as soon as you receive notice of the garnishment order. The longer you wait, the harder it’ll be to stop or reduce it.

How to Avoid Having Your Wages Garnished in the First Place

Clearly, having your wages garnished is a huge hassle you’ll want to avoid if at all possible. So what can you do to prevent it from happening over unpaid credit card debt?The best approach is to be proactive and take action as soon as you realize you’re struggling to make payments:

• Contact your credit card company proactively. Don’t wait for them to contact you first. Let them know you’re having trouble and see if they can put you on a hardship plan or work out a debt settlement.
• Respond to any debt collection attempts. Ignoring letters and calls from debt collectors is the worst thing you can do. It just escalates the situation toward a lawsuit. At least try to negotiate or work out payments.
• Show up for court if sued. If you do end up getting sued over the debt, show up and defend yourself! Failing to appear is an automatic loss and makes garnishment way more likely.
• Consider bankruptcy if you’re in over your head. If you have overwhelming debt from multiple creditors, bankruptcy may be an option to discharge or restructure what you owe. This can put an immediate stop to any pending garnishments.
• Seek professional credit counseling help. Non-profit credit counseling agencies can help you manage debts, negotiate with creditors, and get on a debt repayment plan to avoid litigation and garnishment issues.

The key is being proactive and not just sticking your head in the sand. Ignoring debt problems never makes them go away – it only allows the situation to escalate to a point where your wages could potentially be garnished.

Potential Downsides of Having Wages Garnished

Beyond just the financial strain of having less take-home pay, wage garnishments can have some other negative impacts:

• Credit score damage: While the garnishment itself doesn’t appear on your credit reports, the original debt that caused it will already be hurting your credit scores. And having a court judgment against you for unpaid debts makes that credit score damage even worse.
• Difficulty renting housing: Many landlords run credit and court record checks these days. Seeing a history of unpaid debts and judgments could make them hesitant to rent to you.
• Trouble finding new jobs: Some employers also check credit reports when hiring. Bad credit and outstanding judgments may not automatically disqualify you, but they could raise red flags during the hiring process.
• Stress and embarrassment: Let’s face it – having creditors garnish your paycheck can feel pretty embarrassing, especially if coworkers find out. The added stress and anxiety can take a toll.

So while the garnishment itself may be the main headache, it’s important to consider these other potential downstream effects as well. Avoiding that wage garnishment order in the first place is ideal if possible.

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Specific State Laws on Wage Garnishments

As we mentioned, federal laws set a cap of 25% of your disposable earnings for a single debt garnishment. But many states actually have lower limits that are more consumer-friendly:

• Pennsylvania: Garnishments are limited to a maximum of 10% of your disposable weekly earnings.
• North Carolina and South Carolina: Wage garnishments for consumer debts like credit cards are completely prohibited in these two states.
• Texas: Like the Carolinas, Texas has a complete ban on wage garnishments for credit card debts or other consumer loans. The only exception is for student loans, taxes, and court-ordered child support/alimony.
• Massachusetts: The maximum garnishment is 15% of your gross weekly earnings.
• Ohio: Garnishments are capped at 25% of your disposable earnings or the amount over 30 times minimum wage, whichever is less.

Those are just a few examples – garnishment laws vary across all 50 states. So it’s always wise to check your specific state’s statutes if you’re facing potential garnishment issues.Some states also prohibit employers from firing you simply for having your wages garnished for a single debt. But that protection often goes away if you have multiple garnishment orders against you.

Potential Defenses Against Wage Garnishment

Even if a creditor does get a judgment against you, there may still be some potential defenses you can raise to challenge or reduce a wage garnishment order:

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• Claim of exemption: As mentioned earlier, you can file for an exemption or reduction if the garnishment would create extreme financial hardship for your household and prevent you from covering basic living expenses.
• Statute of limitations defense: In some cases, you may be able to challenge the garnishment if the creditor tried to collect on a debt that was past the statute of limitations time window.
• Mistaken identity: If the debt and garnishment order was issued against you in error (like a case of mistaken identity), you’d have grounds to get it dismissed.
• Improper service: Creditors have to follow strict protocols for properly serving you with a summons about the debt lawsuit. If they didn’t do this correctly, it could invalidate the judgment.
• Bankruptcy filing: As soon as you file for bankruptcy protection, an automatic stay goes into effect that stops any further debt collection efforts like garnishments.

The key with any of these potential defenses is to act quickly and consult with an experienced consumer debt attorney in your area. They can review your specific situation and advise if any of these challenges would be viable options.

Dealing With Aggressive Debt Collectors

Unfortunately, many debt collectors use unethical and even illegal tactics to try intimidating people into paying up. This can include:

• Calling you repeatedly at home and work, even after you’ve asked them to stop
• Using abusive language, threats of violence or arrest
• Lying about what they’re legally allowed to do (like garnish wages without a judgment)
• Contacting your friends, family, neighbors or coworkers about the debt
• Adding unauthorized fees and charges to inflate the debt amount

If a debt collector is doing any of those things, they’re violating federal laws like the Fair Debt Collection Practices Act (FDCPA). You have rights as a consumer, and they can face penalties for breaking those rules.So if you’re dealing with overly aggressive or abusive debt collectors, document everything and consider filing an official complaint with the Consumer Financial Protection Bureau (CFPB) and your state’s attorney general office. An experienced consumer lawyer can also advise you on potential legal action.

When Bankruptcy May Be the Best Option

For many people struggling with overwhelming debt loads, bankruptcy can provide a fresh start and put an end to garnishments and other collection efforts. There are two main types:Chapter 7 bankruptcy is a total debt liquidation. Your eligible debts like credit cards, medical bills, personal loans, and some tax debts get completely discharged (wiped out). In exchange, the bankruptcy trustee may seize and sell any non-exempt assets you own to pay off as much debt as possible to creditors.Chapter 13 bankruptcy involves restructuring your debts into a new 3-5 year repayment plan based on your income and budget. This allows you to catch up on missed payments and keep major assets like your home or car. But you have to stick to the court-approved repayment plan.Both types of bankruptcy put an immediate stop to any pending wage garnishments, bank levies, debt collection calls/letters, and creditor lawsuits against you. It can provide major relief if you’re drowning in debt.The downside is that bankruptcy does stay on your credit reports for 7-10 years, making it harder to get approved for loans, mortgages, credit cards, and even some jobs or rental housing during that time.So it’s not a decision to take lightly. But for many, that short-term credit damage is well worth it to get out from under crushing debt loads and constant creditor harassment.

Get Professional Help to Avoid Wage Garnishment

Look, dealing with unpaid debts and the threat of wage garnishment is stressful enough on its own. You don’t have to go through it alone.There are plenty of non-profit credit counseling agencies that provide free debt evaluation services and can advise you on your best options for avoiding garnishment and legal action. Some potential solutions they may recommend include:

• Debt management plans: The counseling agency negotiates lower interest rates and a single monthly payment with your creditors. You pay the agency, and they disburse payments to each creditor.
• Debt settlement: Your counselor can try negotiating lump-sum settlements with creditors for less than your full outstanding balance. This allows you to resolve debts for a fraction of what you owe.
• Bankruptcy filing: If your debt situation is truly unmanageable, a credit counselor can walk you through the bankruptcy process and make sure you qualify for either Chapter 7 or Chapter 13.

The key is getting help sooner rather than later, before unpaid debts spiral out of control into potential lawsuits and garnishments. A legitimate credit counseling agency can guide you through all the options to deal with your debt responsibly.

The Bottom Line: Don’t Ignore Unpaid Debts

Dealing with debt issues is never fun, but ignoring them and hoping they’ll just go away is a recipe for disaster. Unpaid credit card debts can absolutely lead to your wages being garnished if you allow the situation to escalate to a point where creditors sue you and get a court judgment.So take action as soon as you realize you’re struggling to make payments. Contact your creditors, look into debt relief options, and get help from a non-profit credit counselor if needed. Letting debts linger unaddressed is just asking for trouble down the road.While having your wages garnished is far from ideal, there are ways to potentially avoid it or at least get the garnishment amount reduced if you take a proactive approach. Just don’t stick your head in the sand – that’s the surest path to having your paycheck shorted by creditors.